One bank's problem loan became the solution to another banks' facilities needs this week, when First Chicago Corp. bought a one-million- square-foot office building from a consortium of lenders led by Citicorp.
First Chicago, which plans a merger with NBD Bancorp in which some offices will be consolidated, reportedly paid about $85 million for the Chicago building. The price is less than half the construction cost for a similar-size building, and at the same time the deal produced an acceptable return for Citicorp on a loan that was already written down, sources familiar with the deal said.
The Chicago bank also benefits from acquiring a building that is filled with tenants, because it will be able to move offices in gradually as leases expire, said Mary Spellman, a senior vice president at Draper & Kramer, which represented First Chicago in the purchase.
Because tenant leases in the building expire at the same time as First Chicago's leases on other space, the deal eliminates the "double occupancy" expense that often results from consolidating operations. "We reviewed the marketplace, and this was the building that had the match," Ms. Spellman said.
"This transaction serves us well," said Gregory Haddad, vice president of real estate transactions for First Chicago. "Our initial costs are minimal. Our business units and employees will enjoy a high-quality building and terrific location in close proximity to transportation. ... Most importantly, we'll be able to consolidate costs by consolidating several facilities over the next decade."
Citicorp arranged a long-term loan on the building at 300 South Riverside Plaza in the mid-1980s and seized it in 1991. After a sale fell through last year, the New York money-center has been signing up new tenants in hopes of making the building more attractive, Ms. Spellman said.
The sale was completed quickly because First Chicago wanted to work out a deal before Citicorp put the building on the open market. A team of experts completed due diligence review of the property in less than 10 days, Draper & Kramer said in a press release.
A spokeswoman for First Chicago, noting the merger agreement with NBD, said it remains to be determined which units would be located at the newly acquired building.
First Chicago's headquarters will remain in its building at the corner of Dearborn and Madison streets.